Tesla’s Tumultuous Ride: From EV Leader to Political Controversy

Tesla has been a key leader in the electric vehicle revolution, setting benchmarks in innovation and becoming the reference for EVs in North America. As of January 2025, the company had the top selling car in the world with the Tesla Model Y but fell short of being the top EV brand globally, holding about 8% of the market shares, a second position behind the Chinese car maker BYD which holds 22,1% of the market share. Between 2024 and 2032, a 13.8% CAGR is forecasted in the global electric vehicle market.

Formerly driven by subsidies and policies, it has now been slowed since Trump’s election. He does not prioritize the EV transition and qualify some of the investments made by the states and his predecessor, Joe Biden, a waste. Trump also lowered the targets for EV sales by manufacturers, halted funds to develop charging stations, and is considering ending EV tax credits. While many are seeking to lower their CO2 emissions with electric cars, Trump does not believe they are the solution. These policies will not benefit the EV industry and will most likely hurt manufacturers such as Tesla.

After a huge rally at the end of 2024, Tesla now faces some challenges as its stock price dropped roughly 50% from its recent peak. Since Elon Musk, the CEO of Tesla, went to Washington to join the Trump administration, shares of his company have declined every week, marking the longest losing streak for Tesla in its 15 years as a public traded entity.

Investors are hoping that Tesla will be able to fully develop its full self-driving software, which is partly driving the price higher. Therefore, they have high expectations as evidenced by a ~120 P/E ratio, even with the sustained losses they had over the last few weeks. The fall in its stock price can be explained by disappointing earnings with lower margins due to repeated price cuts aimed at boosting demand and lower-than-expected demand in Europe and China, partly due to the increased competition from traditional automakers and other EV manufacturers such as BYD and Hyundai.

Tesla delivered 495,570 electric vehicles during the fourth quarter of 2024 marginally below the consensus of 498,000. Earnings were also disappointing with revenue at $25.71 billion vs the expected $27.26 billion, and net income dropped 71% from the year prior. The euphoria around Tesla has faded a bit after the news. The stock has been down since, and many analysts have lowered their target price. The projected earnings per share (EPS) for 2025 also tumbled roughly 55% in the past year and fell even more after the news.

As a continuation of his substantial support—nearly $290 million—for the 2024 Republican candidate, Democrat-turned-Republican Elon Musk showed no reluctance in deepening his involvement with the ruling administration following Trump’s triumph. Notably, he has done so as the head of the Department of Government Efficiency (DOGE), an advisory body mandated by the 45th president to monitor government spending in an effort to reduce the U.S. national debt. While this initiative was well received by the public, it has faced significant criticism from specialists, particularly Democrats, who question whether Musk’s agenda aligns with the needs and wants of the American public. Musk’s vast influence, typically reserved for elected officials, is perceived as a threat to democracy. So far, DOGE has led to the termination of several programs supporting minorities and foreign aid initiatives, such as USAID, and has resulted in the dismissal of thousands of federal workers, sparking protests.

Elon’s appetite for right-wing movements is not limited to the U.S. The SpaceX CEO endorses various right-leaning and far-right political parties in multiple countries across the globe, particularly in Europe, where he holds substantial investments. Notably, his support for the AfD, a far-right political party ostracized by all German parties due to its extremist views, has sparked surprise and controversy. Whether speaking at their events or granting them a platform to promote their ideology, Musk actively leverages his influence. His appeal toward right-wing movements is believed to be fueled by their endorsement of investor-friendly tax policies and market deregulation.

“There are common threads in the politicians and parties Musk supports: They’re rooted in nativism and supportive of deregulation.”

   - Steven Feldstein

Carnegie Endowment for International Peace

Musk’s political affiliations have contributed to the decline of Tesla’s brand and share price. Some consumers do not want to be associated with his political views, as evidenced by protests in Tesla showrooms and bumper stickers on Tesla vehicles reading, “I bought this before Elon went crazy.” As far as the numbers go, Tesla’s January sales in Europe fell by 45% year over year, despite the overall market for electric vehicles growing. Although fierce competition from Chinese brands like BYD plays a role, some of the backlash is political. Ironically, Trump recently presented himself in a Tesla in front of the White House saying he would buy one, in support for Musk. Additionally, eco-conscious Tesla investors disapprove of the company’s association with climate-skeptic Trump. The administration’s lack of interest in investing in clean energy—vital to Tesla’s operations and expansion—raises concerns among money managers, who may be pressured to reevaluate their positions in the company. Whether due to pressure from investors unwilling to support Musk’s ideologies or the overall uncertainty surrounding Tesla’s stock performance, a shift in investment strategy seems likely.

Once a leader in the EV revolution, Tesla now faces challenges due to political shifts, increased competition, and declining investor confidence. Elon Musk’s close ties with the Trump administration and right-wing movements have sparked backlash, contributing to a sharp drop in Tesla’s stock price and sales. Even though the market is accustomed to Tesla’s volatility, there is likely a shift in paradigm, with investors becoming more cautious. The company’s recent underperformance, coupled with Musk’s political entanglements and failure to fully deliver on key promises — such as affordability has intensified the skepticism.  This comes at a time when the broader dominance of tech stocks, which have long been the driving force of the market, is being questioned. Is the era of unstoppable tech supremacy nearing its end?

Equity Research Team, Louis-Philippe Gagnon, Gabriel Houde, Zineb Bourchich